personally, i thought last year’s application was much stronger. but anyway, we made it through to mppc.

the essay:

Given the chance, we would push for the widespread adoption of debit cards in Malaysia, a policy that we feel will have major effects not just in the field of finance, but in the economy at large.

Consider this study by Moody’s: between 2008 and 2012, electronic payments (debit and credit cards) contributed a massive $983 billion to the GDP of the 56 largest nations. This comes at a time when consumers in most major economies have started switching from credit to debit cards and the macroeconomic impact has clearly been significant. It’s about time Malaysians follow suit. While our financial landscape may be relatively prepubescent, the debit card is hardly a new creature here – just a criminally overlooked one.

For starters, successfully shifting consumers from credit to debit would make a huge dent in the worrying levels of Malaysian debt. Malaysia boasts one of the highest household debt to disposable income ratios in the world. While this is due in part to the upward-spiralling prices of property and an overdependence on expensive private transport, revolving credit still constitutes a massive chunk of household debt. Coupled with proper financial education, widespread debit usage could potentially alleviate much of these concerns and prevent Malaysians from spending beyond their means.

The policy would be carried out via a dual-phase process. Phase 1 would be incentivizing banks and merchants to accept debit payments. Banks in particular may be initially resistant since they generate more profits from credit purchases. However, the senior research director of CEB Tower Group noted that economies of scale is needed to make today’s debit-based business model work. The lower swipe fees need to be balanced out by a large usage volume – something readily provided if Malaysians adopt the culture of debit cards.

During phase 2, the government should hash out a deal to disseminate subsidized card readers to merchants. If necessary, they could provide the readers for free and collect payments later, essentially carrying out an interest-free ‘loan’ scheme specifically to encourage widespread availability of debit payments. After all, if every store accepts debit cards, the average Malaysian citizen will be much more inclined to take advantage of the convenience.

Are there any drawbacks to an increased reliance of debit? The obvious hindrance from a consumer’s point of view is the matter of security – which is easily overcome if the policy is correctly implemented. Tighter regulation would make charge disputes easier and reduce the chances of fraudulent activity. In addition, we would push for PIN-based payments, due to the extra layer of security provided.

Essentially, our policy boils down to what Mel Thompson calls “the dissolution of politics into economics”. By drawing from the principles of behavioural economics, we can focus on what makes policies successful: identifying the correct incentives. With that in hand, everything else is just routine.